Europe trapped by the ruble

Published on 05.04.2022

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Now the war in Ukraine has entered its second month with, sometimes, unexpected turnarounds. After cutting off the Russian Central Bank from access to its reserves deposited with Western private and public institutions and excluding a number of Russian banks from the Swift interbank payments system, countries importing Russian energy were recently urged , by Putin himself, to pay their bills in rubles from now on. On March 28, meeting by videoconference, the G7 ministers rejected this request, describing it as contrary to the stipulations of the corresponding contracts.

The Russian injunction of March 24 calls for three remarks. The first concerns the risk taken by European officials, especially German ones, in publicly highlighting their reluctance to cut themselves off from Russian exports because of energy dependence. This vulnerability dramatized during the European summits has, without a doubt, reduced the Union’s room for maneuver vis-à-vis Russia, which probably interpreted it as a weakness. The second point concerns the fact that Westerners remained locked into the idea that Russia’s need for dollars and euros was more acute than the EU’s dependence on Russian gas. They therefore took it for granted that the Kremlin was at their mercy and that it would wait, passively and with beating heart, for the “verdicts” of successive European summits.

Russia’s decision to reverse the tables and demand payment in rubles therefore probably caught Berlin and Brussels off guard. Today, it is in fact perfectly plausible to envisage Russia turning off the gas tap if Europe does not comply with its demand to align the roubles.

Third remark finally, the Russian requirement to pay in rubles is also a symbolic snub. Indeed, it would force Western gas buyers to exchange their euros or dollars for rubles with Russian banks, which would act as branches of the central bank, due to a lack of liquidity. However, it is precisely these same banks – public and private – that the first waves of sanctions sought to cut off from the international system.

For the past month, the ruble market has been, to put it mildly, disturbed until the suspension of the international quotation of the ruble, the excess of sellers having pushed the exchange rate of the euro in very few time from 90 rubles to almost 150. If, overnight, buyers of Russian gas were to want to buy rubles, the Russian Central Bank would have a good chance of taking its revenge and reversing – almost arbitrarily – the trend on the “ foreign exchange market, which it would be able to manipulate. Russia’s ultimatum is therefore a bitter lesson for Europe in terms of economic and financial interdependence, also known as globalization. The only possible way out of this imbroglio is a radical and almost immediate reduction in dependence on Russian energy. It would have been better to have thought of it earlier.

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